Explanatory Memorandum
(Circulated by authority of the Treasurer, the Rt. Hon. William McMahon.)Main features
INCOME TAX BILL 1966
INCOME TAX (PARTNERSHIPS AND TRUSTS) BILL 1966
The purpose of these two Bills is to declare the rates of income tax payable for the current financial year 1966-67.
The Income Tax Bill 1966 declares the rates of tax payable by companies and the ordinary rates of tax payable by other taxpayers. It also continues for the 1966-67 financial year the additional levy of 2 1/2% of the tax otherwise payable by individuals.
The Income Tax (Partnerships and Trusts) Bill 1966 declares the special rates of tax payable under the 1964 amendments to the Income Tax Assessment Act in respect of certain partnership, trust and superannuation fund income.
The splitting into two measures of the provisions imposing and declaring income tax for 1966-67 has necessitated some drafting changes.
When read together, however, the two Bills have, with exceptions that will be mentioned, the same broad practical effect as the measures declaring the rates of tax for the 1965-66 financial year - the Income Tax Acts 1965. In keeping with normal practice, the following notes explain only those aspects of the Bills which involve a material change in practical effect from the provisions that applied for the 1965-66 financial year.
Sub-clause (2.) of clause 6 of the Income Tax Bill 1966 declares the rates of tax payable by taxpayers who are subject to the averaging provisions of the Income Tax Assessment Act. These provisions apply only to primary producers. The rates for persons subject to the averaging provisions are set out in the Second Schedule to the Bill and, in some cases, vary from the provisions that applied for 1965-66.
Under the averaging provisions the taxable income of a primary producer is, in broad terms, taxed at rates fixed by reference to his average income of the year of income and the four preceding income years. As they applied for 1965-66 these provisions ceased to have full application for a primary producer whose taxable or average incomes exceeded $8,000. It is proposed that for the 1966-67 year these income limits be increased to $16,000 and the Second Schedule to the Income Tax Bill 1966 provides accordingly.
The increase in the limits for the application of the averaging provisions will mean that taxpayers to whom the averaging provisions apply for the 1966-67 income year, and whose taxable income is greater than the average income, will bear less tax than they would have paid under the old limits if their cases fall within one of the following categories -
- (a)
- both taxable and average income are in excess of $8,000 but not greater than $16,000;
- (b)
- taxable income is in excess of $8,000 and average income is not greater than $8,000;
- (c)
- taxable income is in excess of $16,000 and average income is less than $16,000.
In the absence of special provisions, there could be some cases in which the increased limits would operate to the initial disadvantage of a primary producer. It is proposed that special provisions be inserted in the Income Tax Assessment Act to prevent this happening. These provisions - proposed section 158AC - are explained at pages 24 to 26 of this memorandum.
Clause 8 of the Income Tax Bill 1966 will increase the net income limits for application of the age allowance.
This allowance is available to persons who have been residents of Australia throughout the year of income and who, at the end of that year, have attained, if men, the age of 65 years or, if women, the age of 60 years.
The age allowance exempts from tax aged persons meeting the residential qualifications and whose net income does not exceed the sum of the full age pension and the maximum amount of other permissible income for age pension purposes. In 1965-66 this allowance exempted from tax a person whose net income did not exceed $988. A married taxpayer contributing to the maintenance of his or her spouse who met the residential qualifications was exempt if the combined net income of the couple did not exceed $1,872.
In line with the increases in age pensions announced in the Budget Speech for 1966-67 these exemption limits are being increased by clause 8 to $1,040 and $1,950 respectively.
A measure of relief is also provided by the age allowance where the net income is somewhat in excess of the exemption levels that have been mentioned. Under the 1965 Acts this relief could apply to a taxpayer whose own net income was between $988 and $1,148 or, where the taxpayer was assessed under the married couple provisions, if the combined net income of the couple was between $1,872 and $2,700. These upper limits are being increased - from $1,148 to $1,221 and from $2,700 to $2,882. (By clause 7 of the Income Tax (Partnerships and Trusts) Bill 1966 aged taxpayers within these increased limits will not be called on to pay further tax under section 94 of the Income Tax Assessment Act).
The form of relief in the marginal cases mentioned is that tax (other than the 2 1/2% additional levy) is limited to nine-twentieths of the excess of the net income over the exemption point. The provisions establish a maximum amount of tax only. If the application of normal assessment processes would result in a smaller amount of tax being payable, only the smaller amount is payable.